Corn surges most in two weeks as USDA sees smaller global supply

Corn futures jumped the most in two weeks after a government report showed global inventories will drop more than expected as the worst U.S. drought in more than 50 years cuts output by the most since 1996.

Worldwide inventories on Oct. 1 will be 117.27 million metric tons, down from 123.95 million predicted a month ago and 131.54 million estimated this year, the U.S. Department of Agriculture said today. Analysts surveyed by Bloomberg expected 120.55 million tons, on average. Reserves in the U.S., the largest grower and exporter, will fall 37 percent to 619 million bushels from 988 million this year, USDA data show.

“This report signals there is absolutely no supply cushion,” Dale Schultz, the buyer-relations manager for AgWest Commodities LLC in Holdrege, Nebraska, said in a telephone interview. “We have to raise prices and reduce demand immediately to prevent a real shortage.”

Corn futures for December delivery rose 4 percent to $7.66 a bushel at 8:17 a.m. on the Chicago Board of Trade, heading for the biggest gain since Sept. 28. The price earlier touched $7.725, the highest since Sept. 17.

June and July in the Midwest were the hottest and driest since 1936, according to Donald Keeney, a senior meteorologist for MDA Information Systems Inc. in Gaithersburg, Maryland. About 50 percent of the crop was in poor or very poor condition as of Sept. 30, government data show.

Tighter Supply

The U.S. harvest, which was about 69 percent complete, will total 10.706 billion bushels (271.94 million tons), the lowest in six years and down 0.2 percent from 10.727 billion predicted in September, the USDA said today in its third survey-based estimate for the crop. The average estimate of 31 analysts was 10.616 billion bushels. Last year, farmers collected 12.358 billion bushels.

World output in the crop year that began Oct. 1 will be 839.02 million tons, down from 841.06 million forecast a month ago and 877.75 million harvested last year, the USDA said.

Reduced production has increased costs for ethanol refiners such as Archer Daniels Midland Co. and Valero Energy Corp. and meat producers Tyson Foods Inc. and Smithfield Foods Inc., which buy the grain for livestock feed. High corn prices also may boost demand for fertilizer from CF Industries Holdings Inc., Potash Corp. of Saskatchewan Inc. and Agrium Inc.

Yields will average 122 bushels per acre, the lowest since 1995 and down from 122.8 estimated in September, the USDA said. Last year, the figure was 147.2. Harvested acreage was forecast at 87.721 million, up from 87.361 million estimated in September and 83.981 million a year earlier.

The average cash price for corn in the marketing year that began Sept. 1 will be $7.80 a bushel, compared with $7.90 estimated a month ago and $6.22 last year.